No more Debt, what options do you have?

By: john p. jones

Do you have overwhelming debt? What options are out there? What are the pro's and con's for each?

1) Bankruptcy, Chapter 7:

The pluses: Clears your debt, without you paying them! How much debt you pay off? $0 (however you would have to pay legal fees).

Minuses: It costs you money to file for bankruptcy, it will affect your credit score dramatically. Apart from that, you may not qualify based on factors like your income and assets.

Suggestions: Consider this is your last option. Talk to a bankruptcy lawyer to get all the details upfront. Bankruptcy lawyers often offer free consultations.

2) Debt Consolidation:

This is also known as: debt relief, debt management, and consumer credit counseling.

The pluses: Credit damage is not that bad, it saves you considerable money overall, and no calls from creditors as they get paid every month. How much debt you will pay? 100% plus 8 to 15% annual interest for 2-6 years totalling around 150%.

Minuses: You pay off all the debt plus interest, you have to close your accounts down, its a long time frame typically, and being in such a program will prevent you from qualifying from many loan programs.

Suggestions: If your credit is perfect or near perfect and is very important to you over coming few years and your interest levels on your credit cards are over 20% it would be worth considering this program.

3) Bankruptcy, Chapter 13:

Pluses: Pays off all your debts. Helps those who make too much money to qualify for Chapter 7 Bankruptcy. How much debt you will pay? Depends on your income and ability to pay + lawyer fees. Minuses: the federal government takes over your finances and decides who you pay and when! Stays on your credit for 7 years from the date after you've paid everything off.

Suggestions: Speak with a bankruptcy lawyer. There are only a few circumstances in which Chapter 13 is the wisest decision. Consider other options first.

4) Do nothing and make double and triple payments:

Also known as: strategic payment plans, budgeting, snowballing, etc

Pluses: Pay off your debts much faster, no credit damage. How much debt you will pay? All your debt + fees (albeit over shorter time frame.)

Minuses: could be very expensive, especially in short term. Many people cannot afford this approach.

Suggestions: If your available income far exceeds your minimum payments then this is a often good strategy.

5) Debt Settlement:

Also known as: Debt negotiation, Debt validation, Debt mediation, etc.

Pluses: pays off your debt much faster and at about half of debt amount. Has a flexible payment plan (unlike all other options). How much debt will you pay? Usually about half of your total debt.

Minuses: Credit damage is severe if your credit is presently very good. Calls from creditors and collectors can persist depending on the program.

Suggestions: If your minimum payments far exceed your ability to pay and live your life then this is a good option to consider.

6) Just don't pay them anymore:

Also known as: Not answering the phone. Pluses: you have much less bills to pay! (for now at least). How much debt you pay? you pay nothing now but can be forced to pay a lot more later if you get sued.

Minuses: severe credit damage. Persistent credit calls. Potential for lawsuit and getting wages garnished/assets taken/liens filed very possible.

Suggestions: if you have gone through a dramatic loss in income that is temporary and your creditors won't work with you well it's better to stop paying than to become homeless to pay the debts. Do not risk this with secured debt like mortgage or car loan! Consider another approach once your finances rebound. Pay your most important things first every month (food and shelter).

Working out settlements on your own:

Also known as: Do-it-yourself. Pluses: No lawyer cost, no charges of any debt settlement company. How much debt do you pay? Depends on how successful you are (results will vary).

Minuses: Many creditors won't negotiate with individuals to consolidate debt. Working with collectors is very frustrating and time consuming. Setting up pay plans with collectors will lead to lawsuit if and when you miss a single payment.

Suggestions: best to hire a professional who will actually save you money above and beyond that which you will save yourself including their fees. Also you will save a lot of time and frustration. If you are going to try things yourself do research first.

Bottom line is that you should carefully consider all of your options before choosing any of them. Keep bankruptcy as you final 'card' to play and make sure your priorities are in line with your chosen option. The right path can lead you to a rapid, debt free life.

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Crusader Consumer Services is a Debt Settlement and credit help business. We are members of the Better Business Bureau. We offer free quotations and free consultations.

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